Alternative care environments for regular nursing homes are highly warranted to promote health and well-being of residents with dementia that are part of an age-friendly and dementia-friendly city and society. Insight is lacking on how to translate evidence-based knowledge from theory into a congruent conceptual model for innovation in current practice. This study reports on the co-creation of an alternative nursing home model in the Netherlands. A participatory research approach was used to co-create a conceptual framework with researchers, practitioners and older people following an iterative process. Results indicate that achieving positive outcomes for people with dementia, (in)formal caregivers, and the community is dependent on how well the physical, social and organizational environment are congruently designed. The theoretical underpinnings of the conceptual model have been translated into “the homestead,” which is conceptualized around three main pillars: activation, freedom and relationships. The Homestead Care Model is an illustrative example of how residential care facilities can support the development of age-friendly communities that take into consideration the needs and requirements of older citizens. However, challenges remain to implement radical changes within residential care. More research is needed into the actual implementation of the Homestead Care Model.